[MARKET ANALYSIS] USTs a touch lower, whilst Bunds and Gilts benefit from easing energy prices

Snapshot: Global fixed benchmarks are mixed. USTs (-2+ ticks) are off by a couple of ticks, whilst Bunds (+35 ticks) and Gilts (+50 ticks) are in the green, benefiting from easing energy prices. This comes after President Trump suggested he is having “productive” discussions with Iran, and pushed back on reports that he would order strikes on Iran before the midterms (see commodities for details).   USTs are not faring quite so well as their European counterparts, potentially weighed on by continued hawkish comments from the Fed’s Musalem and Waller, who reiterated the need to raise rates further. Earlier in the week, the US sold 3-year and 10-year notes, which were very well received. This perhaps indicates that the recent surge in yields is offering good value for investors, and bar any resurgence in geopolitical fighting, an early indication that yields could begin to ease from highs. The US 10-year (5.24%) currently holds off near-term highs at 5.36%, but still remains in the territory of multi-year highs. Bunds and Gilts are stronger this morning, facilitated by lower energy prices. The latter had the Holborn and St Pancras by-election to digest, though this spurred little action in UK paper at the open. There will be no real impact in the near-term by way of policy, but it shows that PM Burnham has cleared his first hurdle; the next being the UK Budget on Oct 28. Back to German paper, they started the morning firmer by c. 60 ticks, but are now off best levels as energy prices moved off lows. EGBs more broadly caught a bid in the prior session for two main reasons: 1) ECB Minutes suggested that yields are doing some of the tightening for it, and 2) Italian PM Meloni securing the final approval for a new electoral reform, which essentially gives a leading coalition a better chance at forming a stable government. This reduces some political risk, which Europe has been subject to in the past week: Germany (coalition talks passed without issue), Spain (called an early election) and most importantly France (increased fiscal debt woes). For the latter, the next sticking point is on October 13, when lawmakers will begin formal debates on the draft budget. The OAT-Bund spread is set to end the week around 135bps (vs last week's peak of 151bps).